Bankruptcy Threshold – Increase

Bankruptcy Threshold – Increase from 1 October 2015

The government has implemented a 700% increase in the bankruptcy threshold which must be met prior to creditors being able to present petitions at court. This is expected to seriously reduce the amount of people being made bankrupt following the changes.

After almost 20 years, the Government has hiked the amount over which somebody can be made bankrupt from £750 to £5,000. Surprisingly, at this time, no change has been made to the threshold limit for Winding up Orders which remains at £750. There is no explanation for this significant difference, although in the fullness of time, it may be that the Government increases this sum too.

The limit for Debt Relief Orders has also changed. This is often seen as an alternative to bankruptcy for people struggling with debts, and the amount has been increased from £15,000 to £20,000, meaning that more people are now likely to use this process instead of a petition for their bankruptcy being relied upon.

The new limits will no doubt affect the ability of individuals and small to medium sized businesses to recover their own debts. Creditors owed less than £5,000 will have to use the court system to recover monies due to them. This may mean it may take longer to recover debts, although lesser fees are likely to be payable in the process.

None of this means, however, that the process of serving a statutory demand, which is the precursor to presenting a bankruptcy petition in personal insolvency proceedings, ought to be forgotten. In fact, serving a statutory demand can still be useful and it can be used as a means of demonstrating to a court that the defendant is insolvent, which can have important consequences for protecting a creditor whilst court proceedings are ongoing, as a failure to successfully set aside a demand means that the debtor is deemed insolvent as a matter of law. Some forms of bankruptcy action, such as a claim for s.340 preference payments, require the defendant to be insolvent when payments are made to third parties if there is to be a prospect of having them set aside and claimed for the benefit of the debtor’s estate. Therefore, statutory demands can be a potent weapon in protecting assets for the benefit of the estate and avoid the necessity for creditors to prove, with other evidence, that a debtor is insolvent at a particular time, which in most cases, can be difficult to achieve.

Craig is a commercial litigator. As a Solicitor-Advocate, Craig is able to conduct his own advocacy in the Courts with less reliance upon Counsel, resulting in less expense for clients.
Craig is recognised as a leader in the field of dispute resolution, having been ranked accordingly in Chambers and Partners.